| Abstract
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The first chapter constructs the monthly current account factor that is a good proxy for quarterly current accounts, and it examines the effect of the current account factor on the US term structure. Using the Generalized Method of Moments, I estimate the term structure with inflation, output gap, and current account factors in a No-Arbitrage VAR framework. The model accurately matches the first and second moments of the U.S. yields. The market prices of risks corresponding to the four factors are all significant. The model produces economically reasonable impulse responses of yields to macro shocks. In particular, responses from the current account shock imply an intertemporal substitution effect. A Chi-square test shows that the over-identifying restrictions are not rejected and most importantly, a Likelihood Ratio test implies that the current account factor plays an important role in explaining bond yields. The second chapter presents a quantitative framework to assess sovereign bond restructuring. It lays out important steps and considerations in the assessment, particularly on evaluating creditors' claims, instruments offered in restructuring, and the extent of debt restructuring. Using this framework, the paper carries out a systemic and consistent analysis of recent debt restructurings in Dominican Republic, Ecuador, Moldova, Pakistan, Russia, Ukraine, and Uruguay. The third chapter examines dynamics and determinants of the current account for the US. Combining different variables used in the literature as determinants of current account, I model the joint dynamics of variables with a VAR. The variables include output gap, terms of trade, and real effective exchange rates. In particular, I incorporate output gap instead of growth rates to better capture cyclicality of economy and thus of the current account. The model produces economically reasonable impulse responses where output gap picks up intertemporal substitution effect and cyclicality of the current account. Consumption smoothing and investment adjustment are also manifested in responses to the terms of trade. Current account and terms of trade drive current account forecast errors in the short horizon while output gap and real effective exchange rates explain more than half of long horizon forecasting errors. Vector Error Correction Model impulse responses are also considered as a robust check and they are remarkably similar to those of VAR.
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